Wisdom of the Masses Q&A Sept 18


We can see the wisdom of the masses everywhere so we devote our Saturday message to open comments and questions.

I have been enjoying the wisdom of nature all spring and summer as a flock of turkeys graze in our front yard…originally 19 chicks and three hens.

Their feathers glow in the light of Arles cast through the clouds at dusk…

wild-turkey

The leaf change is just starting here and the wild turkey flock has split. Now only nine turkeys come working in the dusk, almost fully grown now and…

wild-turkey

they come very close to the house.

wild-turkey

Observing the turkeys teaches the value of sharing.  Hens sometimes use a common nest and they find strength in numbers which reflects the power of sharing.

Nature is a wonderful teacher about life and bird behavior is endlessly fascinating in all its complexity and simultaneous simplicity.

Turkeys are considered the best brood-hens though, very different from other birds.

The older, experienced hens in the flock can live to be 12 years old and these matriarch hens pass their intelligence to the offspring.  You can almost see them watching and tuting to the young.   The hens share the duties of raising poults and will adopt poults of another hen if a hen is lost.

On the other hand we have a Great Blue Heron spending time in the pond below… I have not been able to get close for a photo so I painted him instead.  He’s been with us for years…but only in summer up here.

blue-heron

The heron is quite a different bird, self-reliant, self determined and is a solitary fisher.  The male and female hatch and raise their chick together.  This bird stands alone as it works through life, wading in the shallows without anyone to call should it step into too-deep waters.  The heron hears its own instead of a flock’s drummer.  It does not do what a flock does, believe in a flock, or value a flock.
The point is to learn from the masses and apply the lessons that apply to and help you as an individual.

With this thought in mind here are your comments and questions from this week. Please send your Comments and Questions.

Reader’s Question: In your letter today, you said this fellow would have a $92,000+
deduction against his SS, annuity and Interest/dividends.  I was under the impression that the foreign residency deduction was only usable against earned income not investment income.  If that is so,
then the fellow would not have to pay Ecuador tax, but still would have to pay US income tax on his unearned income.  Is this incorrect?

My Reply: I believe this is correct… the $92,000 + deduction is on earned income.  However I suggest you ask David Ingram,  the CPA who can help readers with dual taxation.

The Reader wrote to Ingram: Gary Scott suggested that you might be able to answer the question below.  I would  appreciate your comments on this.

David Ingram Replied: Ecuador taxes “assessable” which income includes business income, employment income, certain capital gains, rent and interest.

Deductions include interest and other expenses paid in gaining the assessable income and gifts to some specified bodies.

The tax rate is progressive from 5% to 35%.

A US, Canadian Spanish, etc., citizen living in Ecuador would be subject to this tax on their world income.

A US citizen living in Ecuador is also subject to US  Income Tax rules.  That would include tax on dividends, royalties, interest, pensions, annuities, Social Security, wages, etc.

Although there is no present treaty with Ecuador, it is my understanding that because of another Cartagena Agreement, Ecuador will honor any foreign tax paid to another country (if the income is sourced there) and use the foreign tax paid to lower Ecuador tax.

Similarly, the US will allow a foreign tax credit on the US return against any tax paid to Ecuador on Ecuadorean source income, or Canada on Canadian Source Income or Indonesia on Indonesian sourced income.

If you are a full time resident of Ecuador, you may exempt up to about (changes every year) $90,000 of ‘earned income’ under US rules by filing form 2555.  This includes self employment and wages.  No investment income is included.

It is important to be careful here.  Having money in third countries CAN RESULT IN DOUBLE TAXATION.

For instance, if you had a pension coming from Canada, Canada would withhold 15%  of the pension (ART 18(2)(a).  When reported to Ecuador, you might have to pay another 15%.  In this case, the source country is Canada and the US would not allow the extra 15% as a tax credit on the US return.  AND, Ecuador, would not allow any extra tax paid to the US because the pension was not sourced there.

David Ingram  is at taxman@centa.com

Reader Comment: Hey Gary, I recently started following your RSS feed to learn about Ecuador. Enjoying it.

On your recent Q & A  a reader brought up the quackwatch article on Dr Wickman. I’m very familiar with quackwatch as one of my heroes has also been been the subject of one of their smears.

So I like to take every opportunity to teach people about the true agenda of quackwatch. Here is the beginning of the response I send to people who inquiring about it. At minimum, if you were to include the first link with your Dr. Wickman comments, it should diffuse any credibility of quackwatch.

“In regards to Quackwatch, the primary phrase to keep in mind is “CONSIDER THE SOURCE.

“Here is a recent news story that provides excellent overview of why you should dismiss anything you read on Quackwatch…http://gaia-health.com/articles251/000277-quackbusters-are-busted.shtml

“First, understand that Quackwatch founder Craig Barrett who makes these despicable accusations is himself a failed MD & psychiatrist http://www.quackpotwatch.org/quackpots/quackpots/barrett.htm

“Second, understand that Mr Barrett and his goons are part of a larger picture…they appear to be mercenaries of the pharmaceutical industry paid to cast doubt on any true alternatives…
http://www.quackpotwatch.org/default.htm

“Third, when they are brought to court and required to show proof of their lies, they are forced to pay hundreds of thousands to the good people they defamed…  http://www.bolenreport.net/

” Finally, when you look at a list of the other people that have been scandalized by Quackwatch, you realize that it is a badge of honor to be among them…

” – Andrew Weil
– Deepak Chopra
– Adelle Davis
– Hulda Clark
– Royal Rife
– Weston A. Price
– Julian Whitaker
– Gary Null
– Hal Huggins
– Jeffrey Bland
– Robert Atkins
– Kurt Donsbach
– Bernie Siegel
– F. Batmanghelidj
– Linus Pauling
– Len Horowitz
– John Gray
– Mathias Rath
– John Upledger
– David Williams
– Jonathan Wright
– Benjamin Feingold
– Bernard Jensen
– John R Lee
– Robert Mendelsohn
– mercola.com”

My Comment: Wow, I certainly learned from that.  Looks like Quackwatch has its own Quackwatch.  Merri and I consult publications by Adelle Davis and Hulda Clark regularly and Deepak Chopra certainly helped Merri and me as one of the medical directors at a health center we utilized every 6 months for almost a decade.  So this reader’s comments are quite meaningful to me.

We have to always take care about information we read anywhere and think not only about the writer but the whole picture.  Take the next question as an example.

Question: I have been receiving many emails asking about a 3.8% tax on real estate transactions.  There is a spam message being forwarded by many unknowing people saying:

“Under the new health care bill – did you know that all real estate transactions are subject to a 3.8% “Sales Tax”?

You can thank Nancy, Harry & Barack (and your local Congressmen) for this one.

If you sell your $400,000 home, this will be a $15,200 tax.”  Is this true?

My Reply: This spam greatly misrepresents reality.  The tax law enacted under the Patient Protection Affordable Care Act (PPACA) health care legislation is far different that and calls for high-income households to be subject to a new 3.8% Medicare tax on investment income starting in 2013:

The law imposes a 3.8% tax on “net investment income or the excess of modified adjusted gross income” over a threshold amount.  The threshold is generally, $250,000 for taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 otherwise.

This can affect interest, dividends, annuities, royalties, rents, income from passive activities, income from trading financial instruments and commodities, and some real estate capital gains.

In short, if you sell your home for a profit above the capital gains threshold of $250,000 per individual or $500,000 per couple you would be required to pay the additional 3.8 percent tax on any gain realized over this threshold.

This is complicated legislation and if you believe you will have a capital gain over $250,000 as an individual or $500,000 as a couple, (lucky you) on real restate I recommend a tax attorney.

We use Joe Cox and I recommend him highly. He can be reached at jcox@coxnici.com He has always been our advisor, is straight forward and clear.

Question: Hi Gary,

You probably don’t like to get asked this, but I think that it is a question that needs to be asked AND ANSWERED.  What would you estimate to be the percentage of expats that come to Ecuador with the intention of staying, but then decide to go somewhere else or return home?  Since these people don’t have their own blog or web site, this information is difficult to find. Best regards,

My Reply: I do not believe there are any accurate statistics on this. This is why WE ALWAYS RECOMMEND (especially for those who have never lived abroad)… wherever you are consider moving… visit first. See as much as you can. If you like what you see…. rent first. Try living in the new place.  Finally if you are happy… perhaps… buy.  There is a growing belief (that I do not share) that owning a home may not be a good idea. For example the September Time Magazine article :”The Case Against Homeownership” By Barbara Kiviat says: Homeownership has let us down.

Here is another example of thinking through the totality of a question.

Reader Question: Good Morning Gary,  Thank you for your newsletters, I enjoy them so very much.  I am hoping to attend the Quantum Wealth seminar in October. I was going to do it last year but could not make it happen.

My question comes from a question that was posed to Simon Black in his newsletter, another international kind of guy that gives insightful information sometimes similar to you in a few ways.

This got my attention because it referred to Jyske Bank:  “Jyske Bank in Denmark is sending me mail asking for my tax ID number. They never asked me before, what do you make of this?”

Black replied: I’m assuming you’re a US taxpayer, in which case Jyske Bank is getting ready to comply with the HIRE Act, which was signed into law earlier this year in the United States.

This innocuously named law requires foreign financial institutions to either comply with IRS reporting regulations, or to withhold 30% of incoming transfers. In asking you for your tax ID number, Jyske Bank is getting its paperwork ready for compliance.

It’s a pain, but remember– having a foreign bank account is not about hiding money, it’s about protecting your capital by moving it away from your home government. Just because they know about it doesn’t mean they can control or confiscate it.”

Gary is there any light you can shed and this since you work so closely and for so long with the bank?

Thank you ahead for your clarity on this matter.

My Comment: First the question of reporting. Any overseas bank must file a W9 to the IRS if any US client buys US bonds or shares. See more on this here.

I have copied Thomas Fischer for more details to pass along but Black’s  point above is clear.

“having a foreign bank account is not about hiding money, it’s about protecting your capital by moving it away from your home government. Just because they know about it doesn’t mean they can control or confiscate it.”

Second more on being a PT (perpetual or permanent traveller).

I took a look at Simon Black’s website.  He writes: “I am a permanent traveler. This means that I have no home, and I am free to move about the world at my discretion. Furthermore, I believe that my capability to make money is not constrained by my geography. It’s not 1984 anymore.

Simon Black is not my real name…  I go by an alias because I value privacy and discretion– there’s not enough left of it in the world today.

This Permanent Traveler (PT) theory probably began with Harry Schultz, in the 1960s.  Harry has been publishing his newsletter for 45 years (he is now 87 and I recently read with sadness that he is ending his newsletter this year).

However I know that Harry had troubles with this concept.  He used it in part to defy the US system. Once when he lived in London, we booked him to speak at a seminar in Sydney, Australia.  He could fly to Australia via Los Angeles at a much lower price than going via Singapore… but he would not or could not touch down in the USA. His stance to defy the US system cost him a lot… in time… trouble… and imagine the family complications this could create.

Not too long after that in the 1970s Doug Casey wrote “International Man.”  At the same time I wrote “Passport to International Profit” which says:

Live in one country
Bank in a second country
Invest in many countries
Earn in two or more countries
Use a company incorporated in a fifth country

Plus it recommended take a second residence…. but never suggested not living in any one particular country especially your original residence.

Later, a writer using the pseudonym W.G. ‘Bill’ Hill wrote a series of books about being a PT.

According to John Treed in “Best-selling real estate authors Bill Hill was “Bill “Tycoon” Greene who wrote “Two Years for Freedom” but was then was according to Treed “Indicted on 1/13/81 for federal income-tax evasion. In 8/81, he was convicted, sentenced to prison and fined. He later escaped from the minimum security prison and is now apparently living in England under the name Dr. William G. Hill.”

Bill Hill ran a company from the UK called Scope. They had a great list of about 20,000 readers. I used to rent it regularly and market our books and reports to those readers.  However Hill’s (aka Greene) concept seemed to expand beyond the original idea of diversification and suggested to have no residence anywhere. I can sympathize with Greene for shifting in this direction if he was mistreated by the US legal system.  However for most people living as a PT is overkill. There are simpler and less expensive ways to gain asset protection and preserve one’s lifestyle.

Having no residence is still possible but is becoming increasingly difficult and will only work with individuals who really do like to travel and who really are willing to put up with numerous simple and perhaps serious complications. So think twice before selling up and heading out.

Reader’s Comment: I refer to your comment in your message Sustainable Investments Sweat the Small Stuff “I wore a light colored suit and removed my tie when I spoke at Jyske’s seminar because I wanted to be the guy with the white hat!  If we abolished neckties we could probably turn air conditioning up a degree or two everywhere, the energy savings would be huge!”

This is something I have been saying for a long,long time. After wearing suits and ties for 30 years it’s shorts and golf shirts every day….even when I’m at the clinic.

By abolishing ties we would, as you say, be much more comfortable, have better blood flow to the brain and be much more productive.  Abolish Ties.  You start the movement and I’ll jump in. Dr. Jim

My Reply: Well, I am one for moderation so will go for… “wear ties on special occasions.”  I do not think I am the one to start a total ban on ties.  Here I am at our daughter’s wedding with Merri and our son Jake dressed as he described we were dressed  “like butlers”.

Glos wedding

That was a first with the long coat/tails….I did it and so did Jake just to please Ele.  I never wear ties at our seminars and courses but will put them on when it is expected of me.

Send us your questions and comments.

Join us in North Carolina for our October 7 to 11 International Investing and Business Course. No ties up here in the Blue Ridge! Here is Thomas Fischer of Jyske speaking at one of our previous autumn seminars.

gary-scott-seminar



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